MOHEMADMUSTAFA A. KHAN,,NASHIK vs. INCOME TAX OFFICER,,

आदेश आदेश / ORDER आदेश आदेश

PER D. KARUNAKARA RAO, AM :

This is the appeal filed by the assessee against the order of CIT(A)-1,

Nashik, dated 22.09.2016 for the Assessment Year 2011-12.

On facts and in law, 1] The learned CIT(A) erred in confirming the disallowance of Rs.4,60,581/- out of the total disallowance of Rs.18,42,323/- made by the A.O. in respect of purchases made from alleged hawala parties on the basis of information obtained from Maharashtra Sales Tax Dept. 2] The learned CIT(A) erred in holding that 25% of the purchases made from the alleged hawala parties were to be disallowed by presuming that the assessee may have made the impugned purchases of goods from certain other parties at a lower cost and hence, the purchases shown from the above parties as recorded in the books of accounts are inflated.

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3] The learned CIT(A) failed to appreciate that- a. The purchases made by the assessee from the above party were supported by tax invoices and the assessee has also maintained quantitative stock record in respect of the said purchases and hence, there was no reason to doubt the genuineness of the said purchases merely on the basis of uncorroborated statement of such supplier. b. The payments to the said party were made through banking channel and the A.O. had not brought any evidence on record to show that the payments made by the assessee to the said party was withdrawn by it and returned to the assessee in cash and hence, in the absence of any contrary evidence, there was no reason to doubt the genuineness of the payments made to the said party. c. The assessee had provided details regarding the impugned suppliers from the site of sales tax dept. and ministry of corporate affairs to prove that the said parties were existing at the time of making purchases from them and the said parties were duly registered with the sales tax dept. and the assessee had also produced certificate from his bank to prove that the payments were credited to the bank account of these suppliers and hence, in view of the above evidences when the parties had issued proper tax invoices in respect of the said purchases, there was no reason to doubt the genuineness of such purchases merely on the basis of uncorroborated statements of these parties. The learned CIT(A) ought to have appreciated that - 4] a. The impugned suppliers had evaded VAT and hence, it may have denied any actual sales before the Sales Tax Dept. solely to absolve itself from VAT liability, however, there was no corroborative evidence whatsoever on record to support its statement and hence, such unsubstantiated statement could not be relied upon by ignoring the documentary evidences furnished by the assessee. b. After considering the same statement of the alleged hawala supplier, the Sales Tax Dept. had not disputed the fact that there has been actual transfer of goods between the assessee and the supplier and hence, the assessee has been made liable to pay VAT on such transfer of goods which has not been deposited by the supplier and therefore, the Income Tax Dept. is not justified in raising additional income tax liability on the assessee in respect of these purchases by adopting a contrary interpretation of the same statement to the effect that there has been no actual transfer of goods. c. The A.O. had himself admitted in the asst. order that he was not able to locate the above alleged hawala parties and thus, the A.O. was in no position to grant the opportunity of cross examination of this party to the assessee and hence, in view of the ratio laid down by Hon'ble Supreme Court in the case of Andaman Timber Industries v. CCE [Civil Appeal No.4228/2006 dated 02.09.2015], the addition made solely on the basis of statement of such supplier recorded at the back of the assessee was not justified at all.

5] Without prejudice, the assessee submits that the disallowance made @ 25% of the amount of purchases is very high and the same may be restricted to a reasonable level considering the facts of the case.

6] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.”

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engaged in the business of manufacturing/trading of transformer components,

parts and reseller of scrap etc. Assessee filed the return of income on

13-08-2011 declaring total income of Rs.5,68,600/- for the assessment year

under consideration. On the basis of information received from the

Investigation Wing of Sales Tax Department, AO issued notice u/s.148 of the

Act to the assessee. AO found that assessee made purchases from four

suppliers namely, (1) Kripa Multitrade Private Ltd. (2) Globe Impex India (3)

Meridian Trading Company and (4) Waksons Enterprises totalling to

Rs.18,42,323/-. Eventually, at the end of assessment proceedings u/s.143(3)

r.w.s. 147 of the Act, the AO made addition of entire sum of Rs.18,43,323/- and

held that the assessee has failed to prove the genuineness of the purchases

made from the above parties. As such, there is no request by the assessee for

cross examination of the suppliers and assessee furnished requisite

documentation in support of trail of goods purchased by the assessee.

made by the AO to 25% of the purchases as per the discussion given in Para

No.6.13 of his order and the same reads as under :

“6.13 Thus, in my opinion the facts on record demonstrate that this is not a case of bogus purchase but a case of inflated purchases and at best from bogus parties. The appellant has purchased goods of Rs.2,17,199/- and Rs.18,42,323/- for A.Yrs. 2009-10 and 2010-11 respectively. Considering the facts and circumstances of the case, the AO is directed to restrict the disallowance to 25% of purchases, i.e. Rs.54,300/- and Rs.4,60,581/- for A.Yrs. 2010-11 and 2011-12 respectively.

the present appeal before the Tribunal with the grounds extracted above.

assessee submitted that confirming 25% of the purchases for the assessment

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year under consideration is on higher side and unsustainable, when the

assessee has established the trail of goods and the payments are made through

banking channels. Further, Ld. Counsel submitted that in view of the plethora

of decisions of the Pune Bench of the Tribunal, the addition may be restricted

to 10% of the bogus purchases. In support of the same, Ld. Counsel for the

assessee also filed a copy of the order of Tribunal in ITA No.1732/PUN/2015

and CO No.46/PUN/2017, dated 13-10-2017 where the Tribunal restricted the

disallowance to the Gross Profit rate of 5% of bogus purchase.

purchases by the CIT(A) and perused the orders of the Revenue and the

decisions relied on by the Ld. Counsel for the assessee. I find that similar issue

of bogus purchases has been decided by the Tribunal in series of decisions.

Further, it is not the case of the Revenue that something is wrong with the

invoices, payments, trail of goods purchased etc. I find the Coordinate Bench

of the Tribunal in the case of Mr. Khan Afzalhussain Mohd. Saie Vs. DCIT – ITA

Nos. 2708 and 2709/PUN/2016, dated 23-03-2018 confirming the addition to

only 10% of such alleged bogus purchases apply to the facts of this case. I

therefore find it to relevant to extract the findings given by the Tribunal in Para

No.11 of order of Tribunal here as under :

“11. Now, coming to the merits of addition. The issue raised in the present appeal is against bogus purchases. We have already adjudicated similar issue in series of decisions with lead order in M/s. Chhabi Electricals Pvt. Ltd. Vs. DCIT in ITA No.795/PUN/2014, relating to assessment year 2010-11, order dated 28.04.2017. The assessee in the first year i.e. assessment year 2009-10 has maintained quantitative details. In other words, it has the evidence of purchasing goods and its sales. In such circumstances, at best, higher gross profit rate can be applied. Following our decision in earlier orders, we hold that GP rate of 10% over and above GP declared by the assessee in its books of account, be applied to work out the additional income in the hands of assessee. The ground of appeal No.3 raised by the assessee is thus, partly allowed.”

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On perusal of the relevant fact, I find the assessee successfully furnished

the requisite documentation relating to purchase of goods and the payment

details too. Considering the same, I direct the Assessing Officer to make

addition in the hands of assessee by adopting GP rate at 10% of bogus

purchases made by the assessee. The argument relating to failure in matter of

cross examination, I find there is no specific request for the same from the

assessee. Hence, the ratio of judgment of Hon’ble Supreme Court in the case

of Andaman Timber Industries Vs. CIT - Civil Appeal No. 4228/2006, dated

02-09-2015 has no application. Accordingly, the grounds raised by the

assessee are partly allowed.

Order pronounced on this 25th day of May, 2018.

Sd/- (D.KARUNAKARA RAO) लेखा सद� / ACCOUNTANT MEMBER पुणे / Pune; �दनांक Dated : 25th May, 2018. Satish

आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : अ�ेिषत

अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT(A)-1, Nashik 3. आयकर आयु� / The CIT-1, Nashik 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “SMC” / 5. DR ‘SMC’, ITAT, Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार

स�यािपत �ित //True Copy//

Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune